- India’s high-growth forecasts can’t be taken for granted. Successful countries make their own destiny; they do not wait for it to descend on them
Economists can only forecast growth; industrialists go ahead and accomplish it. So, when chairman of the Aditya Birla group, Kumar Mangalam Birla, says that India’s growth prospects are good and that his company has lined up investment of $5 billion in the aluminium business alone, it makes sense to sit up and take note.
As Mr Birla pointed out, all major forecasters see the Indian economy grow by more than 7% this year. And that is a significant growth rate, not just in a world of generalised economic anaemia in a period that can be described as pre-post-Pandemic–the pandemic is gone but not quite, enough of it pops up to disrupt supply chains and scare governments, even if not the people, off normalising things entirely.
Mr Birla took into account India’s reasonably robust macroeconomic conditions, the foreign exchange reserves that can finance nine months of imports, significant infrastructure investment plans lined up by the government, new initiatives in manufacturing such as the Production-Linked Incentive schemes for a raft of modern sectors such as electronics, and the recent positive indicators of economic activity.
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While Mr Birla is right to sense growth ahead, it would be a mistake to take growth for granted. There is a certain sense of inevitability of India’s rise, in certain circles, of India’s gradual ascent along the size rankings of the world’s economies, our growing working-age population and the advantage this will give us. Successful countries make their own destiny, actively working for it; they do not wait for it to descend on them in languid anticipation.
The IMF has forecast a slowdown for the world economy, in the wake of the Ukraine war, the resultant spike in energy and food prices and uncertainty. High prices have forced central banks to raise rates, save China’s. The rise in the Federal funds rate by 2.25 percentage points in 2022 and the flight to safety of American capital from around the world have caused the US dollar to appreciate sharply against most currencies of the world. Oil and gas prices are designated in dollars, so oil importing countries have to raise their fuel prices by not just the rise in the dollar price of crude but also by another layer of the rate of their currency’s depreciation against the dollar. As the world slows down, India’s exports should be hurt. So how can India still hope to maintain robust growth when the rest of the world slows down?
India has been buying discounted crude from Russia, disregarding the West’s sanctions on Russian oil, and that gives India some respite on the price of energy. A chief component of India’s exports are information technology services and information technology-enabled services. These are fairly insulated against moderate slowdowns. At the moment, businesses are migrating to the Cloud, meaning they are shifting their data and the software used to manage that data to run the companies are being shifted to failsafe server farms, the use of which is offered by the likes of Amazon Web Services and Microsoft Azure. Indian IT companies hold their hands while they make the transition. Soon, when 5G networks roll out and companies adopt greater degrees of automation, making use of machine-to-machine communication on leased 5G networks, once again, Indian IT would step in with new tools–say Edge Computing, which would process the machine chatter locally, without waiting to relay the information to the Cloud–to complement Cloud services. Indian IT should continue to grow even in a slowdown.
Survival in a slowdown calls for cutting costs, which makes Indian IT-enabled services more attractive than when growth was high and ultra-low interest rates made cash almost free.
A global slowdown would make materials, plant and machinery cheaper than before. This would help Indian industry expand capacity. Why would they expand capacity? The planned infrastructure projects would make that necessary.
As India inevitably urbanises, thousands of additional square kilometres of urban space would need to be built, provided with power lines, telecom towers, sewerage and piped drinking water. New towns would have to be filled with homes, schools and hospitals, restaurants, shops and offices. All these would need to be painted, furnished and polished.
And India’s demographics favour fast growth for the foreseeable future. The ageing world has created enough financial savings to provide the capital needed to build the infrastructure India and other developing countries need, if India’s own domestic savings need constantly to be supplemented with a current account deficit.
India needs to focus on maintaining social cohesion and political stability, free from internal strife of the kind that would result when a large community is made to feel that it cannot live with dignity along with the majority. Then, there are the policy wrinkles such as the ones that put the power sector under continuous financial strain, strip education of quality, and make enforcement of contracts difficult. India will become, no doubt, an economic superpower, but not if Indians assume complacency will thrust it upon them.
Elsewhere in Mint
In Opinion, Diva Jain separates the hype from the reality of ESG investing. Dharmakirti Joshi & Adhish Verma explain what can fuel India’s already-high food inflation. Barry Eichengreen & Poonam Gupta tell how to sustain 7%-plus GDP growth. Can India become a high-income country? Long Story charts out three scenarios.
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